Saturday, April 30, 2011

UPDATE here.Original post:
Okay, there were actually six live blogs. We've linked to four and may get to the other two on Monday.
From the Wall Street Journal's Deal Journal:

LIVE BLOG: The Berkshire Hathaway Annual Meeting

The Berkshire Hathaway annual meeting, known as the “Woodstock for capitalists,” convenes today just one month after the surprise resignation of David Sokol, one of Warren Buffett’s top lieutenants.
Nearly 40,000 people are expected to pack into the Omaha, Neb., Qwest Center to hear Buffett and investing partner Charlie Munger talk about Sokol, the economy, the health of Berkshire Hathaway and everything else under the sun. People have flown in from as far away as Australia to take in the words of the Oracle of Omaha.

The Sokol scandal hangs over what tends to be a raucous, light-hearted affair. Buffett hasn’t commented on the matter since announcing Sokol's resignation on March 30 but pledged he will answer any and all questions today. Your Deal Journal team will be live-blogging the day-long event in real time. You’ll almost be able to taste the See’s Candies....

...Time to Retire This Joke:
Buffett, in talking about Berkshire keeping its cash in very safe places, says he wants assurance just in case Ben Bernanke runs off to South America with Paris Hilton. Where have we heard this joke before? Oh, pretty much everywhere Buffett shows up. Also, Warren, you need a new celebrity ingenue reference. Megan Fox, maybe?

Berkshire Is Cash Conservative
A shareholder wants to know what Berkshire does with its billions of dollars in cash, given the low yields for cash right now. "He's certainly right that all the choices are lousy for short term money right now," Buffett replies.

He says most of Berkshire's cash is parked in Treasurys. It's not a great return, Buffett concedes, but at least we know well get our car back.

In Berkshire's latest annual report, Buffett said he was glad Berkshire didn't invest in commercial paper when that typically safe market imploded during the financial crisis. He also relayed a story about his grandfather, who owned an Omaha grocery store and urged his children to keep at least $1,000 in cash in a safe deposit box just in case.

Berkshire's version of a $1,000 in a safe deposit box? The $34.8 billion in cash and cash equivalents the company had on its books, as of Dec. 31.

And now, for another dig at bankers.

Yes, Warren Buffett doesn't like Wall Street bankers. Buffett says he's never seen an investment bankerâs financial predictions for a company that didn't show earnings going higher. I don't pay attention, he says, and compares it to asking the barber if you need a haircut. This is a frequent Buffett trope.

Buffett says that he and Munger keep financial projections in their heads, rather than rely on the bankers' spreadsheets. Munger's advice for those in business school: At least until you're out of school you have to pretend to do it their way.

Treats!
If we could find areas of growth for See's Candies, it would be very, very profitable, Buffett says. I've lost count how many times Buffett has mentioned See's and its profits today.
Meanwhile, Buffett and Munger have picked up their pace of eating and drinking post-lunch. Munger has a box of treats right in front of him. The box is orange, like his fetching tie. These guys clearly didn't coordinate their wardrobes today. Buffett's cravat is bright pink, very clashing.

Buffett on Nukes
There have been question marks about the future of nuclear power since the crisis in Japan. "I think nuclear power is safe," Buffett said. "Nuclear power is an important part of the world's equation in dealing with problems of harmful emissions from traditional energy sources, he said.
(Buffett does admit there is and will be public resistance to nuclear power after the Japan crisis.)
Buffett has long feared nuclear war, and has lavished charitable contributions on anti-nuke programs. So it's interesting to hear him defend nuclear energy so firmly.

Buffett: Don't Worry About the U.S. Debt
"The United States is not going to have a debt crisis as long as the country issues notes in its own currency, Buffett says. He also proclaimed to have little patience for the bare-knuckle debates in Washington over whether to raise the ceiling on U.S. debt levels.

It seems such a waste of time," Buffett said. In the end, he says, theres no chance that they don't increase the debt ceiling. And Buffett said he'd like to see Washington eliminate the ceiling altogether because it leads to periodic political showdowns that can cripple the federal government.

Speed Isn't Everything:
A shareholder asks Buffett for advice to young people on how to read quickly. (Buffett is a voracious reader. He has said he reads five newspapers a day and lots of the voluminous corporate annual reports.) Buffett does admit now that he doesn't read as quickly as he once did, a rare admission of age-related weakness from the Oracle of Omaha.

It's a huge advantage to be able to read fast," Buffett says, but says he doesn't really believe in speed reading courses or techniques.

Then the Oracle relays a joke from Woody Allen Buffett's second reference today to the film director about how he speed read War and Peace," leading to a not-great recall of the book. It's about Russia," Allen jokes.

Does Buffett Have an Unfair Advantage?
Berkshire Hathaway doesn't muck about fighting over nickels and dimes with companies Buffett wants to buy. If an acquisition target wants to open itself up to multiple possible buyers, Buffett says no thanks. That's why Berkshire was the only suitor for Lubrizol before Berkshire reached a $9 billion acquisition agreement. Typically, to ensure shareholders the best price possible, a company will offer itself for sale to multiple bidders.

Does this mean Lubrizol abdicated its duties to get the best deal for its shareholders?
Buffett and Munger say an emphatic NO.

Buffett said Lubrizol got a rich sale price, and Berkshire simply would have walked away from the acquisition if the company sought to auction itself. Munger is clearly annoyed at this question.
"Anybody else have an easy question?" Munger snapped.

Say Goodbye to $100k
Warren Buffett makes a salary of $100,000 a year. Whoever takes over for him as Berkshireâ€™s CEO is going to make a whole lot more, he says.
I think the next CEO will make a lot of money."

Is Buffett Getting Impatient?
Munger was giving a lengthy answer in response to a request for a case study of a company that did something right, and a cautionary corporate tale of imprudent action. Munger, as Buffett predicted, begins with praise of Costco. After a few more examples, Buffett interrupts with a dark joke about a recent hijacking attempt of him and Munger.

Buffett digs in: When asked for last requests before they are executed, Munger says;Â "Id like to give one more speech on the virtues of Costo, with illustrations."And what's your last request, Mr. Buffett? "I said, 'Shoot Me First.'"

Sorry, AOL
Oh, Warren way to kick a company when it's already dead. In response to a question about the accounting treatment of goodwill, he takes a potshot at AOL Time Warner, perhaps the worst acquisition in corporate America....

“U.S. banking profitability will be considerably less in my view in the period ahead than it was in the early part of this century,” Buffett said today at an annual meeting of Berkshire shareholders in Omaha, Nebraska. “A very important reason is that the leverage will be reduced. That’s probably a good thing for society. That may be a bad thing for banks who can use leverage intelligently.”

Revenue at six of the largest U.S. banks declined by the biggest percentage in three years in the first quarter, as lending dropped and fees were reduced. With unemployment stuck above 8 percent, housing prices falling again and restrictions on charges, the banks are underperforming the broader market....MORE

Next up, Morningstar they are now in the Q&A session, scroll up from the bottom:

by Gregg Warren at 4/30/2011 1:59 PM

Munger: I could spend an entire course talking about GM. All the highs and lows of the business and the impact it had on the stock price, et al.

by Paul Larson edited by Jason Stipp at 1:59 PM

Munger: Costco became the best business in its category by using meritocracy. Passed along cost advantages to customers very quickly. One store in Korea doing $400 million in sales. Right management, ethics, diligence. Costco's success is quite rare.

by Gregg Warren at 4/30/2011 1:56 PM

Carol Loomis: Can you highlight companies that made good moves or bad moves that could serve as a lesson for investors?

by Gregg Warren at 4/30/2011 1:55 PM

Buffett: You can probably leave it out when judging the returns, but when looking at the allocation of capital towards these businesses you have to consider it. When focusing on returns on intangible assets you're not going to amortize that goodwill. When looking at a deal like LZ, you have to judge us on the amount of goodwill we were willing to pay for as part of the purchase price.

by Gregg Warren at 4/30/2011 1:51 PM

Shareholder: How should we think about goodwill when looking at returns on intangible assets?

by Paul Larson at 4/30/2011 1:50 PM

Munger: What are our worst business?
Buffett: Small business without potential of getting big. Also, we’ve not created major earnings power with retail businesses.

by Paul Larson at 4/30/2011 1:45 PM

Sorkin: Buffett has praised Ajit as a possible next successor. Example of exemplary behavior?
Buffett: Never saw anything he did I thought I could do better.

by Gregg Warren at 4/30/2011 1:44 PM

Munger: Warren has said that he will likely stick around until the Class A shares are split.

by Gregg Warren edited by Jason Stipp at 4/30/2011 1:44 PM

Buffett: In essence, Class A shares already split 1500 to 1 when we introduced Class B shares. So no interest in doing it again.

by Gregg Warren at 4/30/2011 1:43 PM

Shareholder: Would Bershire consider splitting its Class A shares? Pros? Cons? What would be long-tem effect?

by Paul Larson at 4/30/2011 1:43 PM

Buffett: Proposal for high-speed rail in California called for 800 miles of track that would have cost $43 billion. Berkshire bought BNSF in its entirety--22,000 miles, 13,000 bridges--for roughly this amount. The replacement value of BNSF is enormous.

by Paul Larson at 4/30/2011 1:40 PM

Buffett: The best are those that require little capital investment, and have strong position to increase prices with inflation, such as Sees. The worst will be ones with fixed returns, like utilities.

by Paul Larson edited by Jason Stipp at 4/30/2011 1:38 PM

Quick: Given environment of high inflation, which of Berkshire's businesses will perform best? Worst?

OMAHA, Neb. — It’s time once again for Berkshire Hathaway’s annual shareholder meeting, the two-day frenzy of Warren Buffett aficionados who have descended here to listen to his latest musings. This year’s meeting promises to be even more interesting than ever, given the controversy over David Sokol, whose resignation has cast a pall over the normally jovial proceedings.

DealBook is on hand for the goings-on: Michael J. de la Merced will be live-blogging the meeting, while Andrew Ross Sorkin will be part of the panel of reporters asking Mr. Buffett questions. And don’t forget to check out the rest of our Berkshire meeting coverage.

When a shareholder asks Buffett if she should bet on or against oil, the Oracle of Omaha admits something: He can't predict the price of commodities. And he has no intention of trying.
"We don't hedge anything in the way of commodities," he says. "Some of our subsidiaries do, and that's fine."
If Berkshire could better make money by sitting in an empty room trading the price of oil, Buffett suggests, why not just do that instead?

"I really think that an intelligent person can make more money over time thinking about productive assets instead of speculating on commodities or fixed-dollar investments for that matter," he said.

Fortune's Carol Loomis reads a shareholder question about the auto parts maker BYD. Is Berkshire worried about product delays and other problems at the company?
Buffett punts to Munger, who basically says he still believes in the company. "The price is still higher than what Berkshire paid," he notes of BYD's stock.

We're returning from lunch with some clarifications on dates by Ron Olson, a Berkshire director and partner at the company's law firm, Munger Tolles & Olson. It's because Berkshire is establishing a legal record w/r/t all matters Sokol....MUCH MORE

Friday, April 29, 2011

No it doesn't, no more so than "ontogeny recapitulates phylogeny" but I was stuck for a headline.
I've referred to various stock frauds as a "potentially fine bit of scripophily" and posted old certs but never got around to a post devoted to the hobby.

that I am evil. Money isn't the root of all evil - it's the love of money. But I love money.From an aesthetic point, I mean.

Years ago I began to collect paper money, possibly because I find the new currency ugly beyond belief, and want a few reminders of the good old days when dollar bills were ornate and backed by metal. Once a week I stop by a coin & bill dealer in the skyway and examine the latest offerings, and perhaps pick up something for the collection. (Which so far has a face value of $8.)

The other day the dealer pulled out a sheaf of old stock certificates, and with dismay I realized I'll probably end up collecting these, too. And they're worthless....MORE

Here's the first one, after this you're on your own:

"I can't believe you said that. Don't look away and pretend you didn't. I can't believe you said that.

This is a scientific instrument. Even if I wanted to give Africa an enema I couldn't."

--

As for the Clevite corporation, it's still around, but with a different name.

Go here, watch the flash animation on the home page, and see if you can tell what the hell's going on.

(By the way, you can click on the certificate to get a larger version;

just don't expect any fancy-schmancy navigation aids. Use your back button.)

Cheniere Energy shares popped 4% to an intraday high of $9.30 and option volume is 3x the daily average being driven by large blocks in longer dated calls. The December $11 call saw a 5,000 contract block trade at the $1.80 asking price and with no prior open interest this looks like an opening purchase. The September $12 call saw a 4,100 block trade at the $1.00 asking price but this could be closing or tied to stock. There is no apparent news. The liquefied natural gas distributor is slated to report earnings early-May, but nothing yet on the company’s event calendar.

We haven't made any changes in the blogroll for over a year and it's about time to play catch up.
With 1300 feeds and terminals there is a lot of stuff we miss even though it is in a feedreader. Yesterday's Goldman Sachs post was an example. We subscribe to Foreign Policy but haven't been to that feed-reader for a few days so if a reader hadn't brought it to our attention we might not have seen it until next week.

As the number of sites proliferate and the content-scraping (we're guilty but try to give readers a reason to follow the link back to the source) creates an echo chamber, the value of a pre-reader, someone who cuts through some percentage of the dreck, increases.

The private market valuation of Facebook recently took a hit when a group of investors looking to sell a large number of shares had to reduce their asking price. The implied valuation from the sale went from $90 billion to $70 billion.

This raises an important question: can you short Facebook?

Facebook shares do not trade on public markets. To buy or sell shares of Facebook, you have to be qualify as an “accredited investor” and trade through a specialized platform for equity in non-public companies. Most of the buying or selling of Facebook shares takes place on SecondMarket.

As far as I can tell, it’s not possible to short Facebook shares on SecondMarket. To sell shares, you have to prove you have them—so naked shorting is out. And there’s no facility for borrowing shares—a crucial step in a short sale.

This means that most investors have no way to bet against Facebook’s astronomical valuations. What’s more, it means that the only people who influence the pricing on Facebook’s valuation are venture capitalists, early Facebook employees with stock grants, and people who want to bid on shares. That’s a recipe for a bullish bias on the shares.

But there is one company that probably can short Facebook—Goldman Sachs...MORE

The chart is the Barclays iPath S&P 500 VIX Short Term Futures Exchange Traded Note.
It traded at an all time low yesterday and looks to do the same today.

*That was the comment of one of the sharper analysts I've ever met (two 100-baggers and a bunch of 10-fold moves) when I showed him a 25-year chart of Philip Morris.
During the period in question the stock moved from a split-adjusted dime to $26.00.

Thursday, April 28, 2011

Huge thanks to a sharp eyed reader for emailing this piece which explains in less than 2000 words a topic that I've spilled billions of electrons over.
From Foreign Policy:

Demand and supply certainly matter. But there's another reason why food across the world has become so expensive: Wall Street greed.

It took the brilliant minds of Goldman Sachs to realize the simple truth that nothing is more valuable than our daily bread. And where there's value, there's money to be made. In 1991, Goldman bankers, led by their prescient president Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI).

For just under a decade, the GSCI remained a relatively static investment vehicle, as bankers remained more interested in risk and collateralized debt than in anything that could be literally sowed or reaped. Then, in 1999, the Commodities Futures Trading Commission deregulated futures markets. All of a sudden, bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food.

Change was coming to the great grain exchanges of Chicago, Minneapolis, and Kansas City --which for 150 years had helped to moderate the peaks and valleys of global food prices. Farming may seem bucolic, but it is an inherently volatile industry, subject to the vicissitudes of weather, disease, and disaster. The grain futures trading system pioneered after the American Civil War by the founders of Archer Daniels Midland, General Mills, and Pillsbury helped to establish America as a financial juggernaut to rival and eventually surpass Europe. The grain markets also insulated American farmers and millers from the inherent risks of their profession.....

...But Goldman's index perverted the symmetry of this system. The structure of the GSCI paid no heed to the centuries-old buy-sell/sell-buy patterns. This newfangled derivative product was "long only," which meant the product was constructed to buy commodities, and only buy. At the bottom of this "long-only" strategy lay an intent to transform an investment in commodities (previously the purview of specialists) into something that looked a great deal like an investment in a stock --the kind of asset class wherein anyone could park their money and let it accrue for decades (along the lines of General Electric or Apple). Once the commodity market had been made to look more like the stock market, bankers could expect new influxes of ready cash. But the long-only strategy possessed a flaw, at least for those of us who eat. The GSCI did not include a mechanism to sell or "short" a commodity.....MORE

If you do a search of Climateer Investing using GSCI or Goldman + oil as keywords you can find a lot of backround material. We've been beating this drum for a few years now.
Another keyword search would be long-only index investor.

According to Bloomberg News, Villareal, a Dallas bank executive, contacted former White House budget director and current Citi vice chairman Peter Orszag about Stein's jokes.
One joke was about a wealthy man, his wife and his mistress, she said.

Another involved a female airline passenger who, realizing the flight is about to crash, takes off her clothes and asks if there is a man aboard who will “make me feel like a woman,” according to Villarreal’s e-mail, which was also sent to Bloomberg News. A cowboy in a hat removes his shirt, hands it to the woman, tells her to iron it and fetch him a beer....

Funny in the '80's.
In 2011 it is a sad reminder that Stein is old.
The New York Observer links to Ben's opener for the 2008 Microsoft Business Intelligence Conference,
the guy's a has-been.

...When I was finished with this speech, dozens of women in the room came up to me and wanted their pictures taken with me, wanted autographs from me. Dozens of them. I got fan mail from women who had been at the group saying how much they liked the speech....

...The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.8 percent in the first quarter, compared with an increase of 2.1 percent in the fourth.Excluding food and energy prices, the price index for gross domestic purchases increased 2.2 percent in the first quarter, compared with an increase of 1.1 percent in the fourth....

As I'm flipping between terminals and feed-readers it strikes me that I'm not interested in any of the news stories I'm looking at.

Valero reports nice crack-spreads but the stock appears to have double-topped.
China is doing a freight rail build-out that should be very positive for Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., Ltd. but the stock may have started a head-and-shoulders top.

With the lazy days of summer coming on I think of a line by "Adam Smith":

“…For, after all, I had been into cocoa a bit myself. That was back when The Great Winfield had discovered cocoa trading. Occasionally in those more leisured days I would sit with him lazily watching stocks move, like two sheriffs in a rowboat watching catfish in the Tennessee River….”

And then the voice of one of my mentors says "This is an opportunity".
I've mentioned him a few times:

One of my mentors* used to say "Stocks are smarter than Analysts". He also said (in no particular order):
Stocks are smarter than Investment Bankers
Stocks are smarter than Fund Managers
Stocks are smarter than Brokers
He was skeptical of human nature and cynical about human arrogance. He was very rich.
Had he lived to see my cyber-punditry I am sure he would have added "Stocks are smarter than bloggers"....

I've mentioned* that one of my mentors was the best trader I've ever met. Creative, intelligent, disciplined (and bankrolled).
From time to time though, he would lose his mind and run around the floor screaming

...*One of my mentors, and one of the sharpest traders I ever met, had the most common flaw of students of markets, hubris. In his case it was non-fatal, more of a cost of doing business:...
...2) He got into a rigged blackjack game in Yugoslavia. Lost half-a-mil. Said he started to think it was was fixed when he was down a couple hundred.
Wife: "Then why the hell did you keep playing?"
Him: "I thought I could beat it".

So I'm thinking 12,681 on the DJIA and 1355.66 on the S&P are a fine spot to get a bit of short exposure.

U.S. grain firm Gavilon Grain said on Thursday it will buy Union Elevator and Warehouse's 16 grain elevators in the Pacific Northwest, the company's second big purchase of U.S. grain facilities in the last six months.

Privately held Union Elevator, where employees own a significant share of the company, approved the transaction on Wednesday, with sale expected to be completed during the second quarter of 2011.

The purchase of 16 elevators at 12 locations in eastern Washington will expand Gavilon's grain capacity by 8.4 million bushels....MORE

Here's the earlier acquisition that made Gavilon the third largest grain handler (behind Cargill and ADM).
From the Kansas City Business Journal:Kansas City ag giant DeBruce agrees to sell to Gavilon

DeBruce Cos., the Kansas City area’s third-largest private company, will sell to Gavilon LLC. The companies did not disclose the value of the deal.

Omaha-based Gavilon has a definitive agreement to buy Kansas City-based DeBruce. As part of the deal, DeBruce will operate as a subsidiary of Gavilon and be led by present CEO and founder Paul DeBruce. COO Larry Kittoe will continue in that role with DeBruce Grain.

A few weeks after that October announcement the Financial Times had a pretty good backrounder:

Wall Street bets on commodities trader

George Soros and other Wall Street investors are backing a US commodity merchant that is clawing its way into the ranks of the industry’s top trading houses.

The investors – not usually associated with the mundane work of moving and storing corn, fertiliser and crude oil – are betting a more crowded, richer planet will rely more on international trade to meet localised food and energy needs.

Gavilon, as the merchant is known, is this month expected to complete the purchase of grain handler DeBruce in a deal that will raise its grain storage capacity to 300m bushels, surpassing the US operations of Bunge, a New York-listed rival, and third only to Archer Daniels Midland and Cargill.

The expansion comes amid forecasts of a tightening balance of supply and demand. The US Department of Agriculture on Tuesday said global wheat and corn stocks were forecast to “drop significantly” everywhere but China, “wiping out nearly all the stocks build-up of the past several years”. World oil consumption is again on the upswing after two years of decline.

“It’s just a huge opportunity,” Greg Heckman, chief executive, told the Financial Times in a rare interview. “If you look at the thesis among our investors, what they saw in Gavilon was a commodity management platform that is positioned to help the global producers and consumers solve these challenges.”

Ospraie, a New York commodity fund manager; General Atlantic, a private-equity firm; and Soros Fund Management acquired the former trading unit of ConAgra Foods for $2.8bn. They completed the deal in June 2008 as commodity indices were breaking records and renamed the company Gavilon, derived from the Spanish for hawk....MORE

Finally here's Gavilon's hometown paper, the Omaha World-Herald, just before the De Bruce deal:

Growing too fast to remain a secret

As you head toward No. 11 ConAgra Drive, there's no clue that you're approaching the headquarters of a company with more than 300 high-salaried local employees, owned by some of the nation's biggest investment groups, with a global network that markets and shuttles billions of dollars worth of grain, fertilizer and fuel each year.

Nor can many people in Omaha tell you much about Gavilon Group.

But Gavilon has become a widely known name in the behind-the-scenes world of commodities, from grain elevators in the Farm Belt to shipping and trading of grain, fertilizer, natural gas and petroleum products on six continents. And some day, Gavilon might even appear on Wall Street. (Ticker symbol GVN is available.)

“We're excited about the opportunities,” said Greg Heckman, Gavilon's president and CEO since ConAgra Foods sold it for $2.8 billion in 2008. “The world is going to demand more food and fuel, and we're going to be there to help that happen as efficiently as possible.”

Even if you haven't heard of Gavilon, you probably have products that the company has touched.
Eggs in the refrigerator? Gavilon traders carry out the sales between grain farmers and poultry producers.
A loaf of bread? Not only the grain but also the fertilizer used to boost yields likely passed through Gavilon's computerized systems as well as its grain storage network, which has a capacity of 150 million bushels.
Natural gas furnace? Gavilon trades energy commodities, ensuring natural gas is available when winter sets in.
Gavilon’s name is new, adapted from the Spanish gavilan, for “hawk.” (One of Gavilon’s owners is Ospraie Special Opportunities Fund, which conjures the fish-eating bird called osprey.)

The other owners are General Atlantic, a $15 billion investment fund based in Greenwich, Conn.; Soros Fund Management, which is affiliated with investor George Soros; and a Gavilon management group.
Despite having a new name, the company traces its roots to 1874, when Peavey Co. of Minneapolis built its first grain elevator.

ConAgra bought Peavey in 1982 and in 1998 moved Peavey's trading group — 100 people and a $5 million annual payroll — from Minneapolis to Omaha. ConAgra merged its and Peavey's traders on a specially built trading floor in the fifth and newest building on the ConAgra campus.

But changes in direction focused ConAgra's attention on brand-name packaged foods, and the ConAgra Trade Group, as it was known, became a “non-core” business. Still a viable business, its future was uncertain within ConAgra.

Heckman worked for ConAgra for 24 years, joining the company after graduating from the University of Illinois, and he helped shepherd the transition to the new owners.

The purchase by the investment group resolved the uncertainty, Heckman said, creating a company whose core business is exactly what its staff is equipped to carry out....MORE

“I am not a lobbyist for ethanol,” Newt Gingrich declared in a mid-winter spat with the editors of The Wall Street Journal over his support for government subsidies for alternative fuel.

But Gingrich was a hired consultant to a major ethanol lobbying group—at more than $300,000 a year.
According to IRS records, the ethanol group Growth Energy paid Gingrich’s consulting firm $312,500 in 2009.The former House Speaker was the organization’s top-paid consultant, according to the records. His pay was one of the group’s largest single expenditures, as it took in and spent about $11 million to promote ethanol and to lobby for federal incentives for its use.

In a Growth Energy publication, Gingrich was listed as a consultant who offered advice on “strategy and communication issues” and who “will speak positively on ethanol related topics to media.”

Chris Thorne, a Growth Energy spokesman, said Gingrich was not hired again in 2010. The group was organized by ethanol producers from the Midwest in late 2008, Thorne said. Its members sought Gingrich’s counsel when it started because “they were people who were never involved in DC politics before, and they were looking for someone who knew how to get things done.” The organization’s IRS report for 2010 is not yet available....MORE

From Mt. Holyoke College:

We all know the word prostitute but how many people know what a courtesan is? It is not a type of ointment that one rubs over something itchy, that is cortisone and is in no way related. Courtesans were at the top of the prostitutional hierarchy. They were above streetwalkers, prostitutes, madams and lorettes. They were the upper tier and they had very elegant lifestyles.

Courtesans were basically mistresses. They were supported by wealthy men who provided them with anything they could ever want. Many such women lived in a more comfortable way then some of the bourgoisie.

Is it just me or does this research note read like a 1999 internet chat room pump and dump?
[it's not just you, the stock is only up two bucks -ed]
From Notable Calls:

Molycorp (NYSE:MCP): Morgan Stanley sees $240/share Bull Case

Morgan Stanley is out positive on Molycorp (NYSE:MCP) raising their Bull case to $240/share (prev. $140) & reiterating their Overweight rating on the rare earths miner.

Ok, seems I got your attention. The actual (base case) target is raised to $90 but who cares, we're talking about MCP here. Morgan Stanley notes they have a constructive view of rare earth oxides and of Molycorp’s prospects. REO fundamentals look favorable based on high-growth end markets and tight availability. They believe news flow regarding future Chinese rare earth policies, spot REO prices and advancement of MCP’s Mountain Pass project will be the key determinants of MCP share price until the start of production in mid-2012. MCP’s Mountain Pass mine is one of only two new REO projects (Mt. Weld in Australia being the other) outside China expected to come on line by 2012.

Spot prices continue to respond to tightening supply. Last year, Chinese export quotas declined ~40% from 2009. The basket price for MCP REO output rose 450% in 2H10, following the quota announcement. Prices are up another ~124% since the 1H11 quota announcement in late December. The rise in REO prices has been uneven though. Export cerium and lanthanum prices are ~600% higher than domestic Chinese prices, compared to ~120% higher for neodymium and praseodymium. Morgan Stanley notes they expect 2011 full-year quotas to be down ~20% yoy (base case), and a successful crackdown on illegal exports could drop supply outside China by as much as 40% yoy. While their conservative price deck is in line with consensus, they believe risks to pricing are still skewed to the upside as tightening supply meets rising demand....MORE

If you don't remember the offering here's part of the prospectus cover:

A few years ago if I had been asked who is the best journalist writing on the oil biz, I'd have answered "Dow Jones' Ann Davis".

Her 2007 piece "Where Has All The Oil Gone?", about Cushing was as good a look at storage and trading of the physical as I've seen in a general interest publication. Some of her other stories included a story on Amaranth that won UCLA's Gerald M. Loeb Award for deadline writing.

Today however, if asked the same question, I'd answer FT Alphaville's Izabella Kaminska.
When I saw her "Cushing" headline I did a quick search of Climateer for "Cushing" and was dumbfounded by how many times her byline came up in stories that we linked. Here's the latest, from FT Alphaville:

By now, anyone following oil markets will be familiar with Cushing syndrome. The one-way flow problem which affects the Cushing delivery point for Nymex WTI futures in Oklahoma preventing oil that’s gathered there to travel to alternative domestic or sea-borne markets where demand is higher.
The dynamics have resulted in an almost permanent discount of WTI crude to sea-borne Brent crude for nearly a year now.
But possibly not for much longer.
As JBC Energy reports on Wednesday:

Turning to Cushing Oklahoma, the delivery point of the Nymex WTI futures contract, pipeline firms Enterprise Product Partners and Energy Transfer Partners have teamed up to build a pipeline system that will carry crude from landlocked storage in Oklahoma to refineries on the US Gulf Coast. The system should be finished by 2012 and include a 400,000 b/d pipeline from Cushing to Houston as well as 500,000 barrels of additional storage capacity at the ending point of the pipeline.

The glut of crude at Cushing has brought benchmark WTI to record discounts to rival Brent. A fast-track construction of a 400,000 b/d pipeline would substantially ease the pressure on WTI, way ahead of current market consensus of about 2-3 years (based on Magellan, Keystone XL). However, it will be interesting to see how much resistance the two companies will face in the approval process, given strong interest of some market participants to extend the current situation.

Of course, pipelines are not the only way to get landlocked crude out of Cushing.....MORE

Tuesday, April 26, 2011

Following up on yesterday's "The End of Cheap Commodities (or not)" which linked via FT Alphaville to GMO's Jeremy Grantham's dystopic view that we have seen a phase shift. Here's the contra argument.
From Clusterstock:

...A March presentation form Stifel Nicolaus' Barry B. Bannister made the argument that commodities are at the peak of traditional, historical ranges. There hasn't been a paradigm busting shift just yet....

*The most respected economist in the world at the time, Professor Irving Fisher:

Sept. 4, 1929 statement "There may be a recession in stock prices, but not anything in the nature of a crash."

(the DJIA had peaked the day before at 381, it would bottom at 41 in 1932), or his more famous locution ""Stock prices have reached what looks like a permanently high plateau." on Oct. 21.
Black Thursday came three days later.

...The regular rounds of investor letters from Bill Gross and his Pimco colleagues have become required reading, both for their economic insights and for their sometimes failed attempts at wordcraft....

Please. No one outside of the Federal Reserve System actually believes this. If Yellen went down to the pits at the CME, the traders would laugh in her face before throwing a party to thank her for this year’s commissions....

I don't care so much about Ben's politics, he was a speechwriter for President Nixon if that gives you a clue. It's the fact that the guy is a freakin' poseur on topics economic or financial. More after the jump.
From DealBreaker:

Bloomberg Brief recently caught up with Nixon speechwriter, actor and Clear Eyes shill Ben Stein to pick his brain on the state of the hedge fund industry. Stein’s thoughts? Investors are getting robbed on management/performance fees and the only way a hedge fund can beat the market is via insider trading which Stein wants no part of in case anyone was wondering.

“This has been an absolutely monumental recent period for event-driven arbitrage, so that’s what I love,” Ben Stein said in an interview. He dislikes currency hedge funds because the strategy is “too treacherous.” “I don’t have any confidence that the people I’d be working with can outperform any kind of index of it,” he said…Retail investors should invest in exchange-traded funds or mutual funds that replicate hedge fund returns, Stein said, because they charge lower fees and have better returns....MORE

Ben's dad Herb was a pretty good economist, he also worked for Nixon and young Ben graduated with honors studying econ at Columbia before passing the bar and becoming a poverty lawyer.

On Sunday Ben Stein wrote an Op-Ed for the New York Times that was conflating, confusing and confounding.I'll have some comments following these exerpts from:

Chicken Little’s Brethren, on the Trading Floor...Much more to the point, the fears and terrors about subprime mortgages have helped knock off 6.7 percent of the stock market’s value in recent weeks. This amounts to about $1.1 trillion, or more than 30 times the losses so far in the subprime market. In other words, these subprime losses are wildly out of all proportion to the likely damage to the economy from the subprime problems.

...Then let’s take a peek at Bear Stearns. This venerable and clever financial house has taken some major hits on subprime mortgages lately. That is sad for the stockholders (I am a very small stockholder), and the price of Bear Stearns stock has tumbled....

Ben went on in that earnestly stupid way for hundreds of words. I noted, trying to keep a civil tongue:

Mr. Stein is glossing over, at minimum, three issues that the sub-prime mess raises....

You’ll forgive me if I take some small measure of credit for this one: after something in the region of 35,000 words of the Ben Stein Watch, the world’s worst financial columnist has finally been fired from the New York Times. And I couldn’t be happier. The reason was his appearance in commercials for (and on the homepage of) freescore.com, a sleazy company which exists only to extract large sums of money from those who can least afford it....MORE

Felix doesn't much care for Ben.
August 14, 2007 was the day I realized just how serious the sub-prime mess was going to be. The DJIA closed down 207 at 13,028. The next day we were down another 167. The INDU took a couple months to hit it's all-time high of 14,164.53 on October 9 but the path ahead was plain to anyone watching in August.
Except Ben Stein.

Gawker scoops that The New York Times has finally given its Sunday Business columnist Ben Stein the ol’ heave-ho, after an incredibly dumb ethical lapse last month.
Reuters’ Felix Salmon, a longtime Stein foe, was the first to point out that the actor/columnist/emcee/Nixon speechwriter/”Bueller… Bueller” guy had sold out to a company called freescore.com, appearing in TV ads promoting the morally dubious service....
...Good riddance, Ben. Take a victory lap, Felix.

One of these days I'll get around to telling you what I really think of the guy.

They shoulda never listened to Al Gore.
Back in 2009 Mr. Gore stated that the Arctic would be ice free within five to seven years.

Of course Mr. Gore has also said regarding the potential of geothermal energy:

"’cause the interior of the earth is extremely hot, several million degrees, and the crust of the earth is hot '".

Kleiner Perkins didn't take him on for his scientific expertise.

Anywho, it appears that Shell listened to Big Al and didn't include the nitrogen dioxide (a greenhouse gas) emissions from the icebreaker required to access their offshore Beaufort/Chukchi Sea prospects and the EPA shot 'em down.

Here's the story from Fox News:

Shell Oil Company has announced it must scrap efforts to drill for oil this summer in the Arctic Ocean off the northern coast of Alaska. The decision comes following a ruling by the EPA’s Environmental Appeals Board to withhold critical air permits. The move has angered some in Congress and triggered a flurry of legislation aimed at stripping the EPA of its oil drilling oversight.

Shell has spent five years and nearly $4 billion dollars on plans to explore for oil in the Beaufort and Chukchi Seas. The leases alone cost $2.2 billion. Shell Vice President Pete Slaiby says obtaining similar air permits for a drilling operation in the Gulf of Mexico would take about 45 days. He’s especially frustrated over the appeal board’s suggestion that the Arctic drill would somehow be hazardous for the people who live in the area. “We think the issues were really not major,” Slaiby said, “and clearly not impactful for the communities we work in.”

The closest village to where Shell proposed to drill is Kaktovik, Alaska. It is one of the most remote places in the United States. According to the latest census, the population is 245 and nearly all of the residents are Alaska natives. The village, which is 1 square mile, sits right along the shores of the Beaufort Sea, 70 miles away from the proposed off-shore drill site.

The EPA’s appeals board ruled that Shell had not taken into consideration emissions from an ice-breaking vessel when calculating overall greenhouse gas emissions from the project. Environmental groups were thrilled by the ruling....MORE

Back in 2007 we posted some articles on investing based on politics, using McCormick's reaper as an example.
Although the reaper had been commercially available in 1840 sales didn't really get going until England repealed the Corn Laws. Here's a snip from "Global Warming, Politics, Laws and Opportunity":

...Invented in 1831 and patented in 1834, McCormick didn't sell a single machine until 1840. The sales figures for the early years are debatable but these are the best I could put together:
1840------- 2
1841--------0
1842--------7
1843------ 29
1844------ 50
1845------ 58
1846------ 75
1847-----800

External factors played a part: Florida, Texas and Iowa were admitted to the Union in '45, '45 and '46 respectively.

Miles of railroad trackage, 2818 miles in 1840 increased to 4633 in 1845 and 9021 in 1850.
The nation's asset base grew e.g. life insurance in force went from $4.7mm (face) in 1840 to $97.1mm in 1850. The country was growing pretty fast....

To summarize part I (below) the McCormick family invented the reaper, sales in the first nine years were zero and in the next seven averaged 31 per year. They then exploded to 800 machines in 1847. What happened?

As reported by The Economist May 16, 1846, the British House of Commons had repealed the "Corn Laws", eliminating the tariff on imported wheat, the day before. Corn in this usage is not maize but rather is generic for grain. Prime Minister Peel won the battle but lost his premiership, the quote of the day was "Peel and repeal."...

The elimination of the tariff combined [so to speak -ed] with the mechanical harvester led to a huge increase in American grain exports to England and a dramatic lowering of unit costs, the two factors, greater volume and lower input costs began a 165 year decline in real food prices.
The last post of the series, and the inspiration for today's headline was "The End of Cheap Food- What was Old is New Again AND: Profiting from Politics":

This story from The Economist got me thinking
(I know, alert the media).

Rising food prices are a threat to many; they also present the world with an enormous opportunity

FOR as long as most people can remember, food has been getting cheaper and farming has been in decline. In 1974-2005 food prices on world markets fell by three-quarters in real terms. Food today is so cheap that the West is battling gluttony even as it scrapes piles of half-eaten leftovers into the bin.

That is why this year's price rise has been so extraordinary. Since the spring, wheat prices have doubled and almost every crop under the sun—maize, milk, oilseeds, you name it—is at or near a peak in nominal terms.

The Economist's food-price index is higher today than at any time since it was created in 1845 (see chart). Even in real terms, prices have jumped by 75% since 2005. No doubt farmers will meet higher prices with investment and more production, but dearer food is likely to persist for years (see article). That is because “agflation” is underpinned by long-running changes in diet that accompany the growing wealth of emerging economies—the Chinese consumer who ate 20kg (44lb) of meat in 1985 will scoff over 50kg of the stuff this year. That in turn pushes up demand for grain: it takes 8kg of grain to produce one of beef....

And what was I thinking about?
Farm implements!

The Economist reported both ends of the story.
Not many publications can say that.

In his latest quarterly letter he returns to one of those themes — runaway commodity prices — but on a much bigger canvas.
Grantham reckons we are witnessing the most important economic event since the Industrial Revolution.

Accelerated demand from developing countries, especially China, has caused an unprecedented shift in the price structure of resources: after 100 hundred years or more of price declines, they are now rising, and in the last 8 years have undone, remarkably, the effects of the last 100-year decline! Statistically, also, the level of price rises makes it extremely unlikely that the old trend is still in place.

From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.

By way of introduction to his thesis, Grantham offers us a chart of world population growth...MUCH MORE

Monday, April 25, 2011

Regular visitors know that I have lost all respect for Paul Krugman.
It wasn't his vile political filth, posted 132 minutes after Rep.Gabrielle Giffords and 18 others were shot in Tucson.
It wasn't his kneejerk defense and advocacy of the slushfund that was the 'stimulus'.
It was his QE2/commodity inflation babble starting just after Bernanke's Jackson Hole speech. As I said in March:

...Listening to folks like Krugman can cost you serious money if you decide to, say, become a perma-bull on wheat because of global warming without learning the meteorological term 'blocking high'.

The funniest refutation of the good professor that I've heard was a precious metal short lamenting the horrible silver harvest of January '11.

....there’s nothing here to suggest any reason to consider inflation a problem.

Recently he has been creating a bit of an escape hatch, in late March he wrote:

What would it take for me to decide that I needed another major rethink? A major surge in domestically-driven inflation — in particular, a surge in wages — would do it.

Well, the wage surge is starting. Late last year, Google gave all its employees a 10% pay increase. Now Microsoft is giving a pay raise to all its employees. FT reports:

Microsoft’s 90,000 employees are to receive a company-wide pay increase, in the latest escalation of the war for talent among technology companies.

The pay increases, announced on Thursday in an internal e-mail by Steve Ballmer, chief executive, are aimed particularly at software engineers at the early stage of their careers and mid-level employees with expertise that is in short supply.

It makes sense that the pay raises are coming first in the high tech sector. In the high tech sector, you have competition for techies to design consumer software and business (i.e. capital goods) software. The high tech industry is in some sense the equivalent of oil in the natural resource sector....MORE

China's central bank is planning to set up a variety of new funds that will make use of the country's massive foreign-exchange reserves, including special-purpose investment funds and a foreign-exchange stabilization fund dedicated to forex interventions, a local news website reported Monday, citing unnamed sources.

"Relevant authorities" are studying a proposal by the People's Bank of China to create funds using some of the forex assets from the PBOC's balance sheet that could invest in sectors such as energy and precious metals, as well as a fund that will allow the central bank to influence foreign-exchange rates, Caixin Media said, citing a source close to the PBOC.

The source said the funds would be loosely modeled on the Norwegian sovereign wealth fund commonly referred to as the Petroleum Fund, which uses the country's oil profits to insulate the economy from price fluctuations, the report said.

China's forex reserves are the largest in the world, totaling $3.0447 trillion at the end of March, up from $2.8473 trillion at the end of 2010, according to the PBOC.

Various academics and policymakers in China have frequently proposed that the country direct more of its foreign-exchange reserves into resources and commodities, but others, such as People's Bank of China Vice Gov. Yi Gang, have countered that it would be difficult to do so without significantly increasing the market prices of those goods.

The proposed forex stabilization fund would allow the PBOC to buy foreign currency directly on the market without having to print new currency notes, the report said, citing people familiar with China's monetary policy....MORE

These amounts are peanuts (a highly subsidized crop) compared to some of the big row crop operators in the midwest and the rice producers in Arkansas and cotton growers of the south and California.
According to Forbes, 10014 is the country's fifth most expensive Zip Code with a median home sales price of $3,785,445.